CIR v YMCA

G.R. No. 124043 October 14, 1998

PANGANIBAN, J.:

FACTS:
YMCA is a non-stock, non-profit institution, which conducts various programs and activities that are
beneficial to the public, especially the young people, pursuant to its religious, educational and charitable
objectives. In 1980, the CIR issued an assessment to private respondent for deficiency income tax,
deficiency expanded withholding taxes on rentals and professional fees and deficiency withholding tax on
wages. YMCA filed protest but the CIR denied it. On appeal, the CTA ruled in favor of YMCA holding that
the lease of properties of YMCA facilities to small shop owners, to restaurant and canteen operators and
the operation of the parking lot are reasonably incidental to and reasonably necessary for the
accomplishment of the objectives. It concluded that the income derived from rentals of small shops and
parking fees is exempt from taxation. The decision was affirmed by CA.

The CIR elevated the case to SC. The CIR posits that rental income derived by a tax-exempt organization
from the lease of its properties, real or personal is not exempt from income taxation, even if such income
is exclusively used for the accomplishment of its objectives. On the other hand, YMCA argues that the last
paragraph of Section 27 should be "subject to the qualification that the income from the properties must
arise from activities 'conducted for profit' before it may be considered taxable. YMCA also invoke 2
provisions of the Constitution, namely Article VI, Section 28 of par. 3 of the 1987 which exempts
"charitable institutions" from the payment not only of property taxes but also of income tax from any
source and Article XIV, Section 4, par. 3 claiming that the YMCA "is a non-stock, non-profit educational
institution whose revenues and assets are used actually, directly and exclusively for educational purposes
so it is exempt from taxes on its properties and income.

ISSUE:
WON the rental income of the YMCA from its real estate subject to tax

HELD:
YES. The provisions of Section 27 of NIRC exempts to tax, among others, the non-profit organizations
organized for social welfare, pleasure, recreation and other non-profitable purposes. However, the last
paragraph thereof provides that the income of whatever kind and character of the foregoing organizations
from any of their properties, real or personal, or from any of their activities conducted for profit,
regardless of the disposition made of such income, shall be subject to the tax imposed under this Code.
Thus, the CIR is correct in concluding that the exemption does not apply to income derived from any of
their properties, real or personal, or from any of their activities conducted for profit, regardless of the
disposition made of such income. The CA is wrong in allowing tax exemption on the ground that the said
income is not collected for profit but is merely incidental to its operation. The law does not make a
distinction. The rental income is taxable regardless of whence such income is derived and how it is used
or disposed of. Where the law does not distinguish, neither should we.

Because taxes are the lifeblood of the nation, the Court has always applied the doctrine of strict in
interpretation in construing tax exemptions. Furthermore, a claim of statutory exemption from taxation
should be manifest. and unmistakable from the language of the law on which it is based. Thus, the claimed
exemption "must expressly be granted in a statute stated in a language too clear to be mistaken." In the
instant case, the exemption claimed by the YMCA is expressly disallowed by the very wording of the last
paragraph of then Section 27 of the NIRC which mandates that the income of exempt organizations (such
as the YMCA) from any of their properties, real or personal, be subject to the tax imposed by the same
Code. Because the last paragraph of said section unequivocally subjects to tax the rent income of the
YMCA from its real property, 20 the Court is duty-bound to abide strictly by its literal meaning and to
refrain from resorting to any convoluted attempt at construction.

The Constitutional provisions cited by YMCA does not help its case. The exemption in Article VI, Section
28 of par. 3 pertained only to real estate taxes on lands, buildings and improvements actually, directly and
exclusively used for religious, charitable or educational purposes. Income tax on the rentals from its
property is not exempted. The bare allegation alone that it is a non-stock, non-profit educational
institution is insufficient to justify its exemption from the payment of income tax.

Laws allowing tax exemption are construed strictissimi juris. Hence, for the YMCA to be granted the
exemption it claims under the aforecited provision, it must prove with substantial evidence that (1) it falls
under the classification non-stock, non-profit educational institution; and (2) the income it seeks to be
exempted from taxation is used actually, directly, and exclusively for educational purposes. However, the
Court notes that not a scintilla of evidence was submitted by private respondent to prove that it met the
said requisites.

Neither is YMCA an educational institution within the purview of Article XIV, Section 4, par. 3 of the
Constitution. The term "educational institution," when used in laws granting tax exemptions, refers to a
school seminary, college or educational establishment. Thus, there is no basis for granting the YMCA
exemption from income tax under the constitutional provision invoked.